Monday, May 21, 2007

Cross-Platform Transfers

Now this is interesting: a new venture will soon be offering cross-platform transfers, as in transfers between two different virtual worlds. Reuters reports that Anshe Chung Studios will offer the ability to transfer virtual money from Second Life to Entropia Universe, and vice verse. Now this project still won’t directly offer users the ability to trade virtual currencies for dollars (or other real currencies), but both Second Life and Entropia already allow dollar-to-virtual currency exchanges. Thus, someone could take Linden dollars, transfer them to Entropia PEDs, and then convert the PEDs to U.S. dollars. In fact, Anshe Chung Studios is itself planning to issue an ATM card which would allow Entropia residents to withdraw cash. Reuters posted a correction noting the ACS is not planning to offer ATM cards. However, MindArk, the parent firm of Entropia, is planning to issue such an ATM card.

Why is this interesting? Well, first, as the Reuter story correctly notes, this opens up a wide world of arbitrage opportunities. The Linden dollar is set to a floating exchange rate with the U.S. dollar, while the Entropia PED has a fixed exchange rate (10 PEDs = US$1).

Second, this development is another indicator of how fast these virtual worlds are moving. Before most governments are even aware of the economic value created in virtual worlds or their tax implications, innovators are pushing the envelope to introduce new financial mechanisms.

Third, such cross-platform transfers would seem to make tracking money transfers much harder to do. If funds can freely move in to, out of, and between virtual worlds, it would seem to make the job of tracking down cybercrime like money laundering more difficult. Fortunately, Chung’s Dreamland website, which allows individuals to buy and sell Linden dollars, seems aware of potential problems and offers this limit on the purchase of Linden dollars: “We currently do not execute orders above 300 US$ / 250 EUR per customer per week!”

Fourth, this venture underscores the international nature of the business of virtual worlds. Anshe Chung Studios is based in Wuhan, China, while Entropia is based in Sweden and Second Life operates out of California. Anshe Chung, who along with her husband is the woman behind Anshe Chung Studios, lives in Germany. Given such diverse geographical bases, it begs the question of which nation's (or nations') laws apply and how to enforce them.

Where to next?